Fronting and program service insurance specialist State National Companies has again increased the volume of business being underwritten through its Program Services division, as it writes an increasing amount of business for reinsurance capital providers, including no doubt for insurance-linked investment fund manager Nephila Capital.
State National’s Program Services sees the company fronting insurance business and managing programs for reinsurance capital providers, including the largest ILS fund manager Nephila.
The Nephila Capital program is one of the most significant for State National, as it helps Nephila channel its reinsurance risk capital nearer to the source of primary risks. Nephila effectively backs the portfolio of insurance business underwritten through the program with its reinsurance capital.
State National reported a rise in income from its Program Services division, to almost $17.7 million for the third-quarter of 2017, up from almost $15.5 million in the prior year.
Driving this is the increasing volume of program business underwritten, with State National reporting that it underwrote over $426 million of gross premiums in Q3, up from $350.5 million in the prior year quarter.
Premiums earned from program services business also increased, to just over $393 million in Q3 2017, from $311 million a year earlier.
Ceding fees earned by State National through its Program Services unit rose by 13% in Q3 of 2017 to almost $21.7 million (up from $19.3m a year earlier), which has helped the firm to increase its profit from this segment of its business. The company said that the growth in ceding fees came from both new and existing client programs.
State National’s Chairman and Chief Executive Officer, Terry Ledbetter, commented on the results; “Our third quarter revenue increase was driven by continued growth in Lender and Program Services with premiums earned and ceding fees both up sequentially and year over year. We believe that the favorable industry trends in both business segments position the company well for future growth and profitability.”
Given State National bears little in the way of risk for the business it underwrites in the Program Services segment, the losses suffered due to recent catastrophe events will be passed onto the reinsurance capital providers, including Nephila.
Of $2.9 billion of reinsurance recoverables that State National cites as assets, around $1.8 billion are fully collateralized, a significant proportion of which are likely from the Nephila Capital programs.
The fee driven insurance business that State National has created provides a glimpse of the future of distributing reinsurance capital and connecting it to risk.
By using its broad underwriting reach and a rated platform to help third-party capital investors access insurance-linked returns State National continues to capitalise on a strategy that many more companies will analyse and pursue.